Australia Monetary Policy

Australia: RBA maintains cash rate in October

October 7, 2015

The Reserve Bank of Australia (RBA) left the cash rate unchanged at 2.0% at its 6 October policy meeting. The decision was in line with market expectations following the Bank’s decision to cut the rate to the current record low on 5 May.

The Bank’s accompanying statement was largely unchanged from last month. The RBA noted that the world economy is expanding, albeit slowly. The global economy is characterized by stronger U.S. growth and threatened by weakening conditions in China and other parts of Asia. Credit conditions remain accommodative, although there are expectations of tightening by the Fed in the coming months. Financial markets have continued to experience periods of excessive volatility in recent months, however, this has not impeded the functioning of such markets.

Domestically, the RBA stated that the economy was expanding at a slower pace than it had averaged in the past, indicating that the economy is operating with spare capacity. The labor market is improving and inflationary pressures remain absent to a large extent, which is helping to keep inflation within the RBA’s target range of 2.0%–3.0%.

The RBA maintained that monetary policy is required to be accommodative given the state of the economy. Such a policy stance is supporting borrowing and spending. The housing market is being reinforced by the low policy rate, and, while downside risks persist in the Sydney and Melbourne housing markets, regulatory measures are helping to mitigate these risks. Domestic equity markets have mirrored the volatility of global markets and the Australian dollar is languishing at values not seen since the 2008 financial crisis as the economy adjusts to a rebalancing of global commodity prices. The next Reserve Bank Board meeting is scheduled for 3 November.

FocusEconomics Consensus Forecast panelists expect the cash rate to end 2015 at 1.92% and see it rising to 1.98% at the end of 2016.

Seasonally-adjusted employment increased by 3,700 in October compared to the prior month, down from the revised 26,600 jobs created in September (previously reported: +19,800 jobs) and sharply undershooting analysts’ expectations.